It is not very many chips, but it means a great deal, especially from a PR standpoint. Intel (NASDAQ: INTC) has taken the processor franchise at Dreamworks from smaller rival AMD (NYSE: AMD). Dreamworks indicated that the Intel products worked much better, a public slap at the incumbent.
According toThe Wall Street Journal, "DreamWorks Animation said the resulting increase in computing power would substantially shorten the time needed for many computing chores and aid the studio's planned shift next year to 3-D animation." Given how good the press is for Intel, it should be giving the chips to Dreamworks for free. Perhaps that is how it got the contract.
Intel's new eight-core chips are extremely powerful and this should be of real benefit to Dreamworks.
The news is another demonstration of how bad things are at AMD. The company still has over $5 billion in debt and barely breaks even on an operating basis. Its shares are just above $5. In 2006, they were above $40.
AMD can ill afford having its name on the front page matched with another customer loss.
Douglas A. McIntyre is an editor at 247wallst.com.
Intel Corporation (NASDAQ: INTC) shares fell today with most other tech stocks after Nvidia Corporation (NASDAQ: NVDA) lowered its second-quarter revenue outlook to a range between $875 million and $950 million, well below analysts' expectations of $1.1 billion. NVDA cited end-market weakness for the lower forecast, which could be a bad sign for INTC. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on INTC.
After hitting a one-year high of $27.99 in December, the stock hit a one-year low of $18.05 in January. This morning, INTC opened at $20.62. So far today the stock has hit a low of $20.26 and a high of $20.80. As of 12:10, INTC is trading at $20.65, down 0.28 (-1.3%). The chart for INTC looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $23 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.0% return in six weeks as long as INTC is below $23 at August expiration. Intel would have to rise by more than 11% before we would start to lose money.
Nvidia (NASDAQ: NVDA), the big graphics chip maker, warned on profits. It was an inauspicious beginning to the earnings season for tech stocks. Many of the world's PCs use Nvidia chips. One of the reasons the company gave for its trouble is slowing demand combined with lower prices. The news was considered so bad that NVDA shares fell over 20% after hours.
According toMarketWatch,the company "expects its second-quarter revenue and gross margin to be lower than its previously announced forecast. The company now expects revenue from $875 million to $950 million." The consensus among analysts was that the company would have revenue of $1.1 billion.
Because the firm's products are so closely associated with PC sales, shares in other chip companies like Intel (NASDAQ: INTC) and computer makers like Dell (NASDAQ: DELL) are almost certain to be viewed as candidates for earnings downgrades of their own.
Nvidia's forecast could be the start of a very hard quarter for tech companies. And they may have been Wall Street's last significant hope.
Douglas A. McIntyre is an editor at 247wallst.com.
MOST NOTEWORTHY: Corning, BTU International and RiskMetricks were today's noteworthy initiations:
ThinkPanmure believes Corning (NYSE: GLW) is well-positioned to benefit from increased penetration of LCD panels into televisions, flat panel monitors, notebooks, and mobile handsets. Shares were initiated with an Accumulate rating and $31 target.
Thomas Weisel said BTU International (NASDAQ: BTUI) is seeing strong order trends for the company's high margin solar sales in its in-line diffusion furnace and metallization products. The firm started shares with an Overweight rating and $15 target.
RiskMetrics (NYSE: RMG) was assumed at JMP Securities with an Ootperform rating and $26 target. The firm expects RMG to benefit from greater focus on managing portfolio risk and on corporate governance issues.
OTHER INITIATIONS:
Intel (NASDAQ: INTC) was initiated at ThinkPanmure with a Buy rating and $29 target.
Gen-Probe (NASDAQ: GPRO) was assumed at William Blair with an Outperform rating.
Baird initiated BJ's Restaurants (NASDAQ: BJRI) with a Neutral rating and $13 target.
ThinkPanmure intiated coverage of Intel (NASDAQ:INTC) with a "buy", according to the the AP.
Wachovia downgraded Lehman (NYSE:LEH) to "market perform" from "outperform" according toBriefing.com. The newservice also reports that Caris initiated Colgate-Palmolive (NYSE:CL) as "above average."
According to 24/7 Wall St. Callaway Golf (NYSE:ELY) was started as Outperform at Raymond James. The financial website also writes that Coca-Cola Company (NYSE: KO) was raised to Buy from Hold at Deutsche Bank.
AMD (NYSE: AMD) will launch a new line of laptop chips, which may help conserve battery power. Who cares? The answer is, probably no one.
According toThe Wall Street Journal, "The combination of chips is particularly good for entertainment applications that are driving many laptop purchases, according to Bahr Mahony, director of AMD's mobile business." And that puts AMD up against chips from much stronger rivals Intel (NASDAQ: INTC) and Nvidia (NASDAQ: NVDA).
AMD's share of the laptop market is about 14% and it has been falling. Several of its products have been late to market, which is unlikely to make it a favorite with PC and server companies that rely on chip delivery timing to launch products.
While there is some chance that the latest chips from AMD could help it get share back from the competition, Wall Street is betting otherwise. Over the last two years, AMD shares are off over 70% while Intel's are up over 30%. That means next to no one thinks the chip company can make a comeback.
As it prepares to report its first quarter results, Lehman Brothers Holdings Inc (NYSE: LEH) may need to raise $3B to $4B to support its balance sheet, meaning its first quarter loss could be higher than the anticipated $300M, according to the Wall Street Journal. The capital raise would likely be through new common shares.
Yahoo! Inc (NASDAQ: YHOO) shareholders are suing the company over an employee severance plan they say was intended to help block its takeover by Microsoft Corporation (NASDAQ: MSFT), adding between $462M and $2.1B to Microsoft's costs,the Wall Street Journal reported.
The Financial Times reported that Momentive Performance Materials, a company owned by private-equity firm Apollo Management, has exercised its option to suspend cash payments on part of its debt.
As manufacturers push to compete in the "netbook" category, Intel Corporation (NASDAQ: INTC) admitted to shortages of its Atom microprocessor. In an interview with with the Financial Times, Intel's executive vice-president, Sean Maloney, said the company had received more orders than expected for the low-power processor.
The market for PC and server chips may be slowing a bit as it becomes more mature. So, big chip companies like Intel (NASDAQ: INTC) need to figure out where to get their next spurt of growth. Smartphones and other "intelligent" wireless devices sales are rising fast, so why not take a piece of that market. One reason is probably competition, but that rarely keeps companies from entering a market that they think is promising.
According toThe Wall Street Journal, "Intel Corp has been heavily promoting a new breed of pocket-size portable devices as a future market for its chips. Its competitors now hope to reap the benefits." Texas Instruments (NYSE: TXN) and Qualcomm (NASDAQ: QCOM) already dominate the mobile market and may not want to let Intel in. Other large chips companies like Nvidia (NASDAQ: NVDA) and AMD (NYSE: AMD) would like a piece of the pie as well.
The gamble by Intel is that there will be huge demand for devices that are smaller than a PC but larger than a smartphone. They will eventually run on WiMax, WiFi and standard cellular broadband networks. The industry calls these "mobile Internet devices."
The success of the new market may swing on one large miscalculation. Consumers may not want a one-pound mini-computer with a tiny keyboard and modest-sized screen. Smartphones like the Apple (NASDAQ: AAPL) iPhone and RIM (NASDAQ: RIMM) BlackBerry are already advanced "computers" and they are being improved every year.
New chips for new devices -- but what if no one wants them?
Advanced Micro Devices (NYSE: AMD) shares opened in the green this morning but have dropped as the day moved on after rumors surfaced that the EU was planning to take action against competitor Intel (NASDAQ: INTC). AMD headed back down after the EU denied that it has yet reached a decision in the matter. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMD.
After hitting a one-year high of $16.19 in July, the stock hit a one-year low of $5.31 in January. This morning, AMD opened at 7.01. So far today the stock has hit a low of $6.77 and a high of $7.07. As of 12:45, AMD is trading at $6.80, down $0.12 (-1.7%). The chart for AMD looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $9 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in five months as long as AMD is below $9 at October expiration. AMD would have to rise by more than 32% before we would start to lose money. Learn more about this type of trade here.
MOST NOTEWORTHY: U.S. semiconductors, Teekay Offshore and Oplink Communications were today's noteworthy upgrades:
Goldman upgraded the U.S. Semiconductor Sector, including Intel (NASDAQ: INTC) and SanDisk (NASDAQ: SNDK) to Attractive from Neutral. The firm believes semi fundamentals are poised to improve in 2H08 and that valuations are reasonable.
Wachovia upgraded Teekay Offshore (NYSE: TOO) to Outperform from Market Perform based on valuation and increased distribution growth outlook following the acquisition of an additional 25% ownership interest in Teekay Offshore Operating, L.P.
Merriman upgraded shares of Oplink Communications (NASDAQ: OPLK) to Buy from Neutral as it believes the company is an attractive takeover target following the Finisar (NASDAQ: FNSR) and Optium (NASDAQ: OPTM) merger, given its low-cost Chinese manufacturing capacity and attractive $140M cash balance.
OTHER UPGRADES:
Goldman upgraded Amazon.com (NASDAQ: AMZN) to Buy from Neutral and added shares to its Conviction Buy List.
William Blair raised Interpublic Group (NYSE: IPG) to Outperform from Market Perform.
The New York Times Bits blog says that according to several label executives, Apple Inc. (NASDAQ: AAPL) has approached some of the major music labels to try to expand the variety of ringtones and other musical features for the iPhone. The negotiations are very active right now and a final deal has not been set, but will likely be during the summer, but after June 9. Ringtones are quite a profitable market, and Apple wanting to have ringtones from major label makes total sense. Apple also wants to offer Answer Tones for the iPhone.
Intel Corp (NASDAQ: INTC) said Monday its venture capital arm has invested 50 million ringgit ($16 million) in Malaysia's Green Packet Berhad to help develop the country's first nationwide high-speed WiMAX network. Already earlier this month, Intel Capital along with Google Inc (NASDAQ: GOOG), Comcast Corp (NASDAQ: CMCSA), Time Warner Cable Inc (NYSE: TWC), and Bright House Networks agreed to invest $3.2 billion into a new company to speed up deployment of the next-generation mobile WiMAX network. But that's not all. Intel Capital also expects to close half a dozen deals in India this year, its regional head said on Monday.
Warren Buffett is apparently on the prowl for another acquisition. The Oracle of Omaha has begun his European tour Monday, looking for possible acquisitions for his Berkshire Hathaway Inc. (NYSE: BRK.A).
The markets got some extra relief today as weekly jobless claims only rose by 6,000 to 371,000. The Philly Fed also showed that manufacturing contracted slower than expected as output fell by 0.7% in April. Below are the unofficial closing prices for major index levels:
China Architectural Engineering, Inc. (AMEX: RCH) enjoyed another massive day as its stock rose another 23% to $10.17 late in the day based on construction, architecture, and engineering needs that will be necessary in China after that earthquake.
CBS Corp. (NYSE: CBS) announced Thursday it has signed a deal to buy CNet Networks Inc. (NASDAQ: CNET) for $11.50 a share in cash. CNet operates not only the CNET site, but also ZDNet, GameSpot.com, TV.com, mp3.com and others. The deal values CNet at about $1.8 billion and push CBS to among the 10 most popular Internet companies in the United States. CBS shares are down 2.9% in premarket trading while CNET shares are of course up over 42% to $11.31.
IAC/InterActiveCorp (NASDAQ: IACI)'s Ask.com has bought Lexico Publishing Group LLC, the parent of Dictionary.com, Thesaurus.com and Reference.com among other sites. Earlier this year, Lexico already agreed to be sold to Answers Corp (NASDAQ: ANSW), but the latter couldn't secure the necessary funds. Now, Lexico sold itself to Ask.com, for an undisclosed amount, although the number people are throwing around is $100 million. Could this acquisition help IACI gain -- even a little -- on market leader Google?
United Airlines (NASDAQ: UAUA) and Continental Airlines Inc. (NYSE: CAL), dropping ideas of a merger, are now talking about forming an alliance to still gain some benefits of working together. United appears relentless in its attempts to help its bottom line through a merger or an alliance. While talking to Continental about an alliance, it is still negotiating with US Airways Group (NYSE: LCC).
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